Human T-cell leukemia virus type I (HTLV-I) and bovine leukemia virus (BLV) are oncogenic retroviruses associated with T-cell and B-cell malignancies, respectively. In both HTLV-I- and BLV-infected cells and tissues, up to 30% of the proviruses have been found to be defective. To begin to understand the potential roles that defective viruses might play in the pathobiology of these diseases, we analyzed the structure and expression of defective viruses. Southern blot analysis of the human T- cell line, C8166, revealed that it contains two different defective and one full-length provirus; the latter provirus was subsequently shown to have a mutation in the rex gene. Because of the rex mutation, these cells can produce Tax protein but not virion structural proteins. In addition, a truncated form of the Rex protein, termed p21X, was found in these cells. Defective proviruses from C8166 cells were molecularly cloned and sequenced. They had internal deletions that included gag, pol, and env genes. When transfected into cells in culture, these defective viruses were not transcriptionally active unless cotransfected with a Tax plasmid. Two major mRNA species were produced from the defective viruses, one of which encoded p21X. Thus, p21X, which has been detected in HTLV-I- infected patients, is derived exclusively from defective proviruses.